Hungary: The Hungarian view
Was the Hungary-related market swoon on Friday the result of misguided naivete on the part of investors who really have no idea how to parse statements from Hungarian politicians? Erik D’Amato, in Budapest, certainly thinks so:
In what must be one of the craziest episodes I’ve witnessed in almost 20 years covering financial markets, a global mini-meltdown has been triggered or at least stoked by people listening to – and taking seriously – the ramblings of a few Hungarian politicians…
Asia was still down earlier today, with Hungary cited as a major reason for the selling.
And all because people foolishly assumed that some Hungarian politicians might be telling the truth! …
In this case there was certainly never any reason to believe that what was being said was believed even by the people saying it.
The point here is that the incoming government ran on a platform of fiscal easing: that’s usually a good way of getting elected. And so in order to make the fiscal cuts necessary to remain compliant with EU and IMF conditionality, they had to get very serious very quickly — in public — about the severity of the government’s financial problems.
New to government, they went too far. But there’s a case to be made that the markets should have taken the government’s remarks as good news, since they indicated that everything was going according to plan and that the government was just as serious about fiscal austerity as anybody could hope, and was trying to use scare tactics to sell the need for budget cuts to the populace more generally.
European markets aren’t buying it: they’re trading below their Friday closing levels today, as is the euro. But then again, the whole idea that global markets suddenly cared about Hungary on Friday was always a bit bizarre. They never cared much about Hungary before, and the country isn’t a member of the eurozone, so doesn’t pose the existential risks to the European project that Greece does. Most likely this was just another one of those random triggers which might normally have been easily ignored, but which was simply the excuse that jittery and volatile markets needed to sell off sharply.
These little news bombs can and will come from anywhere: by their nature they’re unpredictable. What’s clear is that markets aren’t robust to them these days. Which raises the question: do you want to “invest” in an asset class which is so prone to panic?